Life Insurance

Why Do Singles Need These Two Estate Planning Tools?

Morningstar’s article, “2 Estate-Planning Tools That Singles Should Consider” explains that a living will, or advance medical directive, is a legal document that details your wishes for life-sustaining treatment. It’s a document that you sign when you’re of sound mind and says you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

Powers of Attorney for healthcare and finances are often overlooked as critical estate planning documents for singles.

If you’re on life support with no chance of getting better, you’d choose to have your family avoid the expense and stress of keeping you alive artificially.

Like a living will, a durable power of attorney for healthcare is a legal document that names an agent to make healthcare decisions for you, if you are unable to make them yourself.

A durable power of attorney for healthcare can provide your instructions in circumstances in which you’re not necessarily terminally ill, but you are incapacitated.

When selecting an agent, find a person you trust enough to act on your behalf when you’re unable. Let this person know exactly how you feel about blood transfusions, organ transplants, disclosure of your medical information and other sensitive topics that may arise, if you’re incapacitated.

A power of attorney eliminates any confusion, especially if this person is someone other than your spouse. Your doctors will know exactly who the decision-maker is among your relatives and friends.

These two documents aren’t all that comprise a fully comprehensive estate plan. Singles should regularly make certain that the beneficiary designations on their checking and retirement accounts are up to date.

You should also consider your life insurance needs, especially if you have children and/or a mortgage.

It is also important to understand that a living will doesn’t address the issues of a will. A will ensures that your property is distributed after your death, in accordance with your wishes. Ask for help from an experienced estate planning attorney.

These two documents—a living will and a durable power of attorney—can help ensure that in a healthcare emergency, any medical and financial decisions made on your behalf are in accordance with what you really want. Speak with to an estate-planning attorney in your state to get definitive answers to your questions.

Reference: Morningstar (April 23, 2019) “2 Estate-Planning Tools That Singles Should Consider”

Common Mistakes with Beneficiary Designations

Questions about beneficiary designations are among the most common we hear from new clients in our law practice.  This is a topic that should be among those discussed by an estate planning attorney during your first meeting.

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Estate Planning Attorney
Assets with a beneficiary designation will not be distributed according to your will.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for their retirement accounts. If you don’t name a beneficiary for retirement accounts, the financial company has it owns rules about where the assets will go after you die. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications and may need to be handled through the costly and time-consuming probate courts. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your estate planning attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes (like marriage and divorce for example), make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your estate planning attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

When Should I Review My Estate Plan?

As life changes, you need to periodically review your estate-planning documents and discuss your situation with your estate planning attorney.

WMUR’s recent article, “Money Matters: Reviewing your estate plan,” says a common question is “When should I review my documents?”

Estate Plan Review
You should review your estate plan each time a major life event occurs or every 5 years, whichever comes first.

Every few years is the quick answer, but a change in your life may also necessitate a review. Major life events can be related to a marriage, divorce, or death in the family; a substantial change in estate size; a move to another state and/or acquisition of property in another state; the death of an executor, trustee or guardian; the birth or adoption of children or grandchildren; retirement; and a significant change in health, to name just a handful.

When you conduct your review, consider these questions:

  • Does anyone in your family have special needs?
  • Do you have any children from a previous marriage?
  • Is your choice of executor, guardian, or trustee still okay?
  • Do you have a valid living will, durable power of attorney for health care, or a do-not-resuscitate to manage your health care, if you’re not able to do so?
  • Do you need to plan for Medicaid?
  • Are your beneficiary designations up to date on your retirement plans, annuities, payable-on-death bank accounts and life insurance?
  • Do you have charitable intentions and if so, are they mentioned in your documents?
  • Do you own sufficient life insurance?

In addition, review your digital presence and take the necessary efforts to protect your online information, after your death or if you’re no longer able to act.

It may take a little time, effort, and money to review your documents, but doing so helps ensure your intentions are properly executed. Your planning will help to protect your family during a difficult time.

Reference: WMUR (January 24, 2019) “Money Matters: Reviewing your estate plan”

As a New Parent, Have You Updated (or Created) Your Estate Plan?

You just had a baby. As a new parent you’re sleep-deprived, overwhelmed, and frazzled. Having a child dramatically changes one’s legacy and makes having an estate plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

If you have a baby, estate planning is a must
After you have a baby, putting an estate plan in place is one of the most important and effective things you can do to protect your child.

Take time to talk through two high-priority items. Create a staggered checklist—starting with today—and set attainable dates to complete the rest of the tasks. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who will care for your children, if something happens to both you and your spouse. A will also should name a guardian to be responsible for the children. Parents also should think about how they want to share their personal belongings and financial assets. Without a will, the state decides what goes to whom. Lastly, a will must name an executor.
  2. Beneficiaries. Review your beneficiary designations when you create your will, because you don’t want your will and designations (on life insurance policies and investments) telling two different stories. If there’s an issue, the beneficiary designation overrides the will. All accounts with a beneficiary listed automatically avoid probate court.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court, including property. This avoids court fees and hassle. A trust also provides some flexibility and customization to your plan. You can instruct that your children get a sum of money at 18, 25 or 30, and you can say that the money is for school, among other conditions. The trustee will distribute funds, according to your instructions.
  4. Power of Attorney and Health Care Proxy. These are two separate documents, but they’re both used in the event of incapacitation. Their power of attorney and health care proxy designees can make important financial and medical decisions, when you’re incapable of doing so.
  5. Life Insurance. Most people don’t think about purchasing life insurance, until they have children. Therefore, if you haven’t thought about it, you’re not alone. If you are among the few who bought a policy pre-child, consider increasing the amount so your child is covered, if something should happen.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

Can I Use My Life Insurance to Give to Charity?

As Forbes explains in the article “2 Ways To Combine Charitable Giving And Life Insurance,” one of the core products for protecting wealth is life insurance. As you age, your need for life insurance may lessen, but sometimes it will increase. If you have a life insurance policy that you no longer need, one option might be to use your life insurance to give to charity. You can simply donate your policy to a charity of your choosing.  There are several ways that life insurance policies can be gifted or used for charitable purposes.

Donate your life insurance policy to charity
Use your life insurance policy to make a charitable donation.

Gift Your Existing Policy. You can simply give away an existing policy, if you no longer need the policy for estate liquidity or estate taxes. You could gift the policy outright to your favorite charity or use a Donor Advised Fund (DAF). If you give the policy to a charity outright, you can change ownership of the policy and pretty much be done with it. You might get a charitable income tax deduction for the value of the policy at the time of the gift (it’s measured by the sum of the interpolated terminal reserve plus unearned premiums rather than the death benefit amount).

If the policy has ongoing premiums, those would be the responsibility of the charity. However, you can help them, by continuing to make the premium payments on behalf of the charity by directly paying the insurance company. You could also pay the value of the premiums to the charity and let it pay the insurance company. The premiums would then be tax deductible, since the charity owns the policy.

You could also simplify your life as the donor, where you could convert the policy to a reduced and paid-up policy and donate it with no ongoing premiums needed. This may be easier, because you don’t need to create an additional outflow of cash, after the gift is made to keep the policy in effect for the charity. You just transfer the policy value without any further obligations.

Charities typically like to receive gifts of policies with no ongoing premiums, because it eliminates the task of sending the donor a gift receipt, every time a premium payment is made. It also eliminates the issue of whether the donor or the charity is to pay future premiums.

Gift a New Life Insurance Policy. Another tact is to give a new life insurance policy. This can be a bit more involved, because if the charity’s going to be the owner, they must have an insurable interest in the donor. However, if you have a strong ongoing relationship with the charity, this requirement can be satisfied. You can then pay up the policy completely at the start or make ongoing premium payments over time.

Reference: Forbes (March 6, 2019) “2 Ways To Combine Charitable Giving And Life Insurance”

Estate Planning for a Blended Family?

A blended family (or stepfamily) can be thought of as the result of two or more people forming a life together (married or not) that includes children from one or both of their previous relationships, says The Pittsburgh Post-Gazette in a recent article, “You’re in love again, but consider the legal and financial issues before it’s too late.”

Research from the Pew Research Center study shows a high remarriage rate for those 55 and older—67% between the ages 55 and 64 remarry. Some of the high remarriage percentage may be due to increasing life expectancies or the death of a spouse. In addition, divorces are increasing for older people who may have decided that, with the children grown, they want to go their separate ways.

elderly couple ARAG members
Getting married for the second time? Don’t forget to review your estate planning documents.

It’s important to note that although 50% of first marriages end in divorce, that number jumps to 67% of second marriages and 80% of third marriages end in divorce.

So if you’re remarrying, you should think about starting out with a prenuptial agreement. This type of agreement is made between two people prior to marriage. It sets out rights to property and support, in case there’s a divorce or death. Both parties must reveal their finances. This is really helpful, when each may have different income sources, assets and expenses.

You should discuss whose name will be on the deed to your home, which is often the asset with the most value, as well as the beneficiary designations of your life insurance policies, 401(k)s and individual retirement accounts.

It is also important to review the agents under your health care directives and financial powers of attorney. Ask yourself if you truly want your stepchildren in any of these agent roles, which may include “pulling the plug” or ending life support.

Talk to an experienced estate planning attorney about these important estate planning documents that you’ll need, when you say “I do” for the second (or third) time.

Reference: Pittsburgh Post-Gazette (February 24, 2019) “You’re in love again, but consider the legal and financial issues before it’s too late”

A Will is an Essential Component of Estate Planning

Drafting a will is a fundamental and essential component of estate planning.

Drafting a will with an experienced estate planning attorney helps avoid unnecessary work and perhaps some stress, when a family member passes away. A will permits the heirs to act with the decedent’s wishes in mind and can make certain that assets and possessions are passed to the correct individuals or organizations.

The Delaware County Daily Times’ recent article, “Senior Life: Things people should know about creating wills,” says that estate planning can be complicated. That’s the reason why many people use an experienced attorney to get the job done right. Attorneys who specialize in estate planning will typically discuss the following topics with their clients.

  • Assets: Create a list of known assets and determine which of those are covered by the will and which have to be passed on according to other estate laws, such as through joint tenancy or a beneficiary designation, like life insurance policies or retirement plan proceeds. A will also can dispose of other assets, such as photographs, mementos and jewelry.
  • Guardianship: Parents with minor children should include a clause regarding whom they want to become the guardians for their underage children or dependents. (For more about this, download Mastry Law’s FREE report A Parent’s Guide to Protecting Your Children Through Estate Planning.
  • Pets: Some people use their will to instruct the guardianship of pets and to leave assets for their care. However, remember that pets don’t have the legal capacity to own property, so don’t give money directly to pets in a will.
  • Funeral instructions: Finalizing probate won’t occur until after the funeral, so wishes may go unheeded.
  • Executor: This individual is a trusted person who will carry out the terms of the will. She should be willing to serve and be capable of executing the will.

Those who die without a valid will become intestate. This results in the estate being settled based upon the laws where that person lived. A court-appointed administrator will serve in the capacity to transfer property. This administrator will be bound by the laws of the state and may make decisions that go against the decedent’s wishes.

To avoid this, a will and other estate planning documents are critical. Talk to an estate planning attorney or download a FREE copy of our estate planning book, Failing to Plan is Planning to Fail.

Reference: The Delaware County Daily Times (January 7, 2019) “Senior Life: Things people should know about creating wills”

What’s the Difference Between Per Capita And Per Stirpes Beneficiary Designations?

A will covers the distribution of most assets upon your death. However, any assets that require beneficiary designations, like 401(k), IRAs, annuities, or life insurance policies, are distributed according to the designation for that account. A beneficiary designation takes precedence over the instructions in a will or trust.

Benzinga’s recent article addresses this question: “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?” Have you changed the beneficiary designations, since the account or policy was first started? If you need to update your beneficiary designation, talk to the company responsible for maintaining the account. They’ll send you a form to complete, sign and return. Keep a copy for your own records.

You should also name a contingent beneficiary to receive the account, in case the primary beneficiary passes away before you can update the beneficiary list. Without a listed contingency, your account designation goes to a default, based on the original agreement you signed and the state law.

With per capita distribution, all members of a particular group receive an equal share of the distribution. Within a will or trust, that group can be your children, all your combined descendants, or named individuals. Under per capita, the share of any beneficiary that precedes you in death is shared equally among the remaining beneficiaries. Within a beneficiary designation, per capita typically means an equal distribution among your children.

Per stirpes distribution uses a generational approach. If a named beneficiary precedes you in death, then the benefits would pass on to that person’s children in equal parts. Spouses are generally not part of a per stirpes distribution.

Assume that you had two children. With per stirpes, if one child were to precede you in death, the other child would receive half, and the children of the deceased child would get the other half.

Create a list of all your accounts that have beneficiary designations and keep it with your will. If you don’t have a copy of the latest beneficiary designation form, write down the primary beneficiary, contingent beneficiary, and the date the beneficiary designation was last updated for each one.

Remember, it’s important to keep both your will and all beneficiary designations up to date.

Reference: Benzinga (December 26, 2018) “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?”

Here’s More Insight into Why Estate Planning is Critical

Fox 5 NY says in the article “Why estate planning is important regardless of your age or wealth” that this is great time to begin talking to your loved ones about estate planning, especially older relatives and parents.

The key to a successful discussion depends upon the right approach.

Try to always make suggestions, rather than demands. One great way to start the conversation with family members, is to mention what you’re doing. You might say something like, “I just took care of my own estate planning. Have you done anything? Maybe we should talk about it.” That might get the conversation rolling.

Many people believe that, as they get older, they need a will. However, that’s just one piece of the puzzle: core estate planning includes a will, power of attorney, health care surrogate and asset protection.

For most of us, the asset we most want to protect is our home. One of the best ways to do that is through a trust. Depending upon the type of trust you use, it may also have tax advantages, could protect your home during a healthcare crisis and protect your home from your children’s creditors.

You also need to find people you trust to help with finances and health care. A power of attorney is a legal document in which you grant a person the authority to handle finances on your behalf.

Similarly, a healthcare surrogate is an individual who makes healthcare decisions, if you get sick or are in an accident and can’t make decisions for yourself.

You can use one person to do both or separate individuals for each role. You can opt for a family member or a trusted friend. However, either way it should probably be a younger person, who won’t be dealing with the same aging issues as you.

You should also note that your will doesn’t cover everything. Make certain that any beneficiaries designated in your retirement plans or life insurance and any additional names on joint bank accounts are current. The beneficiaries you appointed by a designation form will get the money in those accounts, no matter what it says in your will.

If all of this sounds a bit complex, don’t worry because an experienced estate planning or elder law attorney can help you with all of the forms and all of your questions. Just understand these three things before you visit an elder law firm: your assets, whose names are on the accounts and your wishes.

Reference: Fox 5 NY (December 12, 2018) “Why estate planning is important regardless of your age or wealth”

Can Beneficiary Designations Help Simplify the Estate Planning Process?

Often overlooked, the beneficiary designation can be one of the easiest ways to move assets directly to heirs without going through the probate process.

Many accounts and financial products will allow you to designate a beneficiary.  The beneficiary is the person who will receive the asset directly when the owner passes away. This is something that most of us encounter when we open a bank account, purchase an insurance policy or start a retirement savings plan, according to the article, “A simple way to simplify estate planning,” appearing in the Tupelo (MS) Daily Journal.

MP900442211The type of assets that allow beneficiary designations also include annuities, transfer-on-death investment accounts, pay-on-death bank accounts, stock options and executive deferred compensation plans.

Remembering who the beneficiary is on these accounts can be difficult. However, when you consider the consequences of having the incorrect person named on the asset, it’s well worth the effort. Due to the importance of the beneficiary designation, note these reminders:

  • Designate beneficiaries. Without this, assets can be tied up in probate court, resulting in delays, costs and unfavorable tax treatment.
  • List a primary and contingent beneficiary. It is common to have a spouse as primary beneficiary, and a child as contingent, which lets the asset pass to the child if the spouse has also passed away. You can also name a charity you support to be the contingent.
  • Keep things up-to-date. Any time there’s a birth, adoption, death, marriage or divorce, you should review your accounts and polices.
  • Go through the instructions on the form before signing it. Beneficiary forms can vary, so review each one.
  • Coordinate your beneficiary designations with your will or trust documents. If they don’t, it could cause the probate process to be delayed.
  • Work with an estate planning attorney before naming a trust as a beneficiary. Tax consequences may be different for a trust than for an individual, so some situations make a trust a wise option.
  • Know the tax consequences of naming a beneficiary of a particular asset. That’s because every asset does not have the same tax treatment.

Far too many people learn the hard way, that whatever is on the beneficiary designation determines who receives the asset, no matter what is in your will. Make a list of all of assets that have a beneficiary designation and review it when you review your estate plan. If you don’t have a contingency beneficiary, add that as well. Your estate planning attorney will be able to help you if you run into any questions and to ensure that your beneficiary designations align with your overall estate planning goals.

Reference: Tupelo Daily Journal (November 2, 2018) “A simple way to simplify estate planning”

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